Ubisoft 2014 Annual Report Download - page 117

Financial statements
2014
112
Non-current assets financed via finance leases are restated in the consolidated financial statements
so as to reflect the position that would have existed if the Company had used borrowed funds to
acquire the assets directly.
The amount recognized on the asset side is equal to the fair value of the asset leased or, if this value
falls below the present value of the minimum lease payments, the fair value minus accumulated
depreciation and impairment.
Deferred tax arising from the restatement of finance leases is recognized in the financial statements.
Impairment testing of non-current assets
Non-current assets with an indefinite useful life (goodwill and brands)
Brands
Brands controlled by the Group have, mostly, an indefinite life and are tested for impairment annually
and each time impairment indicators are identified.
The recoverable value of brands is estimated using the royalties method which includes updating on a
5-year horizon potential royalties that would come back to the Group if it conceded rights to use the
brand to a third party, taking into account the expected commercialization of games based on the
sphere of the brand itself, and taking into account a residual value resulting from the perpetuity growth
rate of the normative cash flow from royalties.
Goodwill
Goodwill on the balance sheet of the Group may be related to the acquisition of:
 Distribution subsidiaries operating in a given geographical area
 Production subsidiaries
As the recoverable amount of this goodwill cannot be determined individually, the Group has identified
for each of them the smallest group of assets (cash-generating unit) generating cash inflows that are
independent of other group assets:
 For goodwill relating to distribution subsidiaries operating in a given geographical area: the CGU is
the geographical area in which the distribution subsidiary operates.
 For goodwill relating to production subsidiaries: the CGU corresponds to the total assets of
production activities (internal studios) and publishing (parent company), these two activities being
interdependent.
The recoverable value of the CGU is the higher of fair value minus cost of sale (net fair value) and its
value in use. The estimated value is defined as the sum of projected cash flows with CGU discounted
based on a business plan at 3 years to which the asset belongs (including goodwill), and the terminal
value determined by projection to infinity of normative future cash flows. When the market value or the
value in use is less than the carrying value of related assets of the CGU concerned (including
goodwill), an impairment loss is recognized. This is irreversible when it relates to goodwill.
The business plans used for each CGU being tested for impairment are based on assumptions made
by management of the Group in terms of variation of sales, level of profitability, and in particular
foreign exchange. These are considered reasonable and consistent with market data available at the
time of preparation of the Group’s financial statements.
The discount rate applied to future cash flows is common to all CGU given the interdependence within
the Group, publishing/production and distribution activities on the one hand, and country risk
comparable in the main distribution areas of the Group (North America and Western Europe). It
corresponds to the estimate (updated annually) by the Group’s management of the weighted average
cost of capital based on available industry data, especially with regard to the financing structure
(gearing) and beta coefficient on the equity market risk premium. It stood at 8.89% at March 31, 2014,
(against 8.94% at March 31, 2013).